Agricultural Policy - Policy Tools

Policy Tools

An agricultural subsidy is a governmental subsidy paid to farmers and agribusinesses to manage the agricultural industry as one part of the various methods a government uses in a mixed economy. The conditions for payment and the reasons for the individual specific subsidies varies with farm product, size of farm, nature of ownership, and country among other factors. Enriching peanut farmers for political purposes, keeping the price of a staple low to keep the poor from rebelling, stabilizing the production of a crop to avoid famine years, encouraging diversification and many other purposes have been suggested as the reason for specific subsidies.

Price floors or price ceilings set a minimum or maximum price for a product. Price controls encourage more production by a price floor or less production by a price ceiling. A government can erect trade barriers to limit the quantity of goods imported (in the case of a Quota Share) or enact tariffs to raise the domestic price of imported products. These barriers give preference to domestic producers.